| No. | Accounting Concepts | Definition/Description/Examples |
|---|---|---|
| 1 | Credit Sales | When goods are sold on credit with the aim of increasing clientele and turnover. |
| 2 | Debtors | Customers who owe money to the business. |
| 3 | Credit Agreements | Specifies the credit limit, payment terms and penalties. |
| 4 | Invoice | Document issued to customers when goods are sold for credit. |
| 5 | Credit Bureau | Private business which collects the credit records of customers. |
| 6 | Repayments | Money owed is paid back. |
| 7 | National Credit Act | Aims at preventing people from spending money they do not have. |
| 8 | Creditworthiness | Having a good credit record and affordability. |
| 9 | Credit reference | Process conducted by businesses when a customer wants to buy goods on credit to make sure that they are trustworthy and can pay the debt. |
| 10 | Term of Credit | The time or the period that the debtor must pay their account. |
The National Credit Act, Act 34 of 2005 ("the NCA")
The NCA became fully operational in South Africa on 1 June 2007.
The main purposes of the National Credit Act can be summarised as follows:
The Credit Act is there to prevent people from spending money they don't have. It's there to help the banks manage the massive debt this country has and help stop reckless lending by the banks. It compels the banks and other credit providers to ensure that their clients do not over extend their credit limit. The act makes the credit providers legally responsible for checking the applicant's full credit situation. On credit application, clients will be asked to declare their income as well as their expenses. The client must declare all debt, for example car repayments, credit cards, retail accounts and any other debt the client may have.
There's no denying that credit is a good thing. It gives you that extra edge when you want to buy those things that have always been out of your reach. Without access to these additional funds how would you afford that dream lifestyle? The problem comes in where debt can quickly spiral out of your control. So the trick, manage your finances. Only borrow what you can afford. The NCA focuses on protecting people from becoming financially overcommitted. As such it prevents businesses from lending money without ensuring that:
A Credit bureau is a private business which acquires records, maintains and makes available to contracted subscribers, information concerning the manner in which consumers conduct their credit and business dealings. Everyone who has ever applied for credit is listed with the credit bureau. When you apply for credit with a company that subscribes to a credit bureau, that company will have access to your credit history, which is provided by the credit bureau. The company can then make an informed decision and assess their risk in granting you the said credit. Most companies will not grant credit to individuals who have negative listings.
It shows your entire credit history which includes what loans you have applied for and what accounts you have opened as well as any negative credit listings where you may have fallen behind on payments or if you have a judgment or several judgments against you.
The primary objective of any business is to maximize profit. Profits are generated from sales. Many people cannot afford immediate payment-therefore traders have to sell on credit to maximize sales. Credit customers receive the goods immediately but make payments at a later date. The customer to whom the goods are sold is called a debtor. Granting a credit carries an element of risk because there is always a possibility that the customer may not pay. The trader will evaluate the debtor’s creditworthiness. If the trader is satisfied that the debtor is credit worthy it will enter into a credit agreement with debtor. As soon as credit sale takes place a credit invoice is issued to record the transaction. Credit invoices serve as proof that the debtor owes money.